What is Unsecured Debt?  And, Why does it Matter?

What is unsecured debt; and, why does it matter?  Good question to ask.  It’s a common question for those starting to investigate bankruptcy and trying to determine whether bankruptcy is a good fit for them.
Unsecured Versus Secured Debt
“Unsecured” debt is debt that is not linked to any property.  Examples of unsecured debt would be credit card debt, payday loans, personal loans, medical bills, and utility bills.  Student loans, taxes, and child support are unsecured debt but cannot be discharged in bankruptcy.
In contrast, “secured” debt is debt that is linked to your property such as a mortgage, home equity line of credit, car loan, and furniture loan.
Unsecured Debt is Discharged; You Never Have to Pay it Back
Why does it matter whether a debt is secured or unsecured?  It matters, significantly whether debt is unsecured or secured because unsecured debt is discharged in bankruptcy, specifically, Chapter 7 bankruptcy.  In fact Chapter 7 bankruptcy is often a good fit for people with high unsecured debt and relatively low income.  If debt is discharged it means that you never have to pay those debts back; they are erased, gone. 
Is Your Property Protected or Subject to Seizure?
The potential downside of filing a Chapter 7 bankruptcy is that there are limits on the amount of property you can keep and still qualify.  Potentially, the bankruptcy court can seize excess assets and sell them to pay off your creditors.  However, people filing Chapter 7 bankruptcy in Ohio only have assets seized in about 5% of all cases.   There are exemptions that allow you to keep a certain amount of personal property no matter which chapter you file.
Do You Qualify for Chapter 7 Bankruptcy and to Have Your Unsecured Debt Discharged?
Eligibility for Chapter 7 bankruptcy can be determined by the “means test.”  This compares your income and expenses to the standard for your geographic area, as decided by the IRS. 

• This means test determines if your income is less than the median income for a family of your size in your state.
• This means test determines whether you should be able to make minimum payments to creditors.

An experienced bankruptcy attorney can walk you through the means test to help decide if you are eligible for Chapter 7 bankruptcy.  

Where to Get Answers to Your Specific Bankruptcy Questions
Bankruptcy is a very specialized area of law; be sure your attorney focuses his or her practice on bankruptcy and helping people like you.  We focus our practice on bankruptcy law and helping people just like you.  You can reach us at 513-793-6555 or Thomasjr@geygan.com. 
We will gently walk you through the bankruptcy process, answer your questions, analyze your case, and aggressively fight for your legal rights.  Your next step is to contact our office.